Pershing Square Hedge Fund: A Guide To Investing

Pershing Square Capital Management is an American hedge fund management company founded and run by billionaire investor Bill Ackman. The company is headquartered in New York City and was started in 2004 with $54 million in funding from Ackman's personal funds and a seed investment from Leucadia National. Pershing Square Capital Management currently oversees three funds with billions of dollars in assets under management. The firm's client base is made up entirely of pooled investment vehicles, including high-net-worth individuals, pension funds, profit-sharing plans, trusts, estates, charitable organizations, corporations, business entities, endowments, and foreign sovereign wealth funds. Pershing Square Capital Management's largest holding is Hilton Worldwide Holdings Inc. with 8,952,290 shares held. The firm's investment philosophy involves seeking out solid companies with large growth potential and investing in a relatively modest number of core investments, typically eight to 12. Pershing Square Capital Management has been involved in several high-profile investments and activist campaigns, including campaigns against McDonald's, Wendy's, and Herbalife.

Pershing Square Capital Management's history and structure

Pershing Square Capital Management is an American hedge fund management company founded and run by Bill Ackman, headquartered in New York City.

Bill Ackman started Pershing Square Capital Management in 2004 with $54 million in funding from his personal funds and a seed investment from Leucadia National. The company is structured as a closed-ended fund, acquiring and holding significant (but generally not controlling) positions in a concentrated number of large-capitalization companies.

The company's investment manager, Pershing Square Capital Management, L.P. (PSCM), was founded by Ackman on January 1, 2004. PSCM is responsible for the investment of PSH's assets and liabilities in accordance with the investment policy of PSH. PSCM generally focuses on high-quality businesses, which it believes have limited downside and that generate predictable, recurring cash flow. PSCM aims to manage risks through careful investment selection and portfolio construction, engaging in typically only one to three new core investments each year.

Pershing Square Capital Management's largest holding is Hilton Worldwide Holdings Inc, with shares held of 8,952,290. The company serves as the management company for various investment funds, including Pershing Square, L.P. (PS LP), Pershing Square International, Ltd. (PS Ltd), and Pershing Square Holdings, Ltd. (PSH). These funds, collectively known as the Core Funds, generally implement similar investment objectives, policies, and strategies.

Pershing Square's investment strategies

Pershing Square Capital Management is an American hedge fund management company founded and run by CEO Bill Ackman, headquartered in New York City. The company pursues speculative investment strategies that carry substantial risks, and clients are advised to be prepared for the possibility of substantial losses. Pershing Square Capital Management's investment strategy can be summarised as follows:

• Concentrated investing: Pershing Square focuses on a small number of companies with simple, predictable, and understandable business operations. They prefer investments with low sensitivity to macroeconomic factors, low commodity exposure, and low cyclical risk.
• Accepting complexity: The company is willing to accept highly complex situations, legal structures, and capital structures if the potential reward justifies the risk.
• Long-term approach: Ackman believes that short-term market movements are impossible to predict and instead focuses on a long-term investment strategy. This reduces the temptation to exit positions due to short-term volatility.
• Learning from mistakes: Ackman is not afraid to admit when he is wrong and change course. For example, he sold his stake in Netflix at a loss when he realised his initial theory was incorrect.
• Ignoring short-term turbulence: Pershing Square ignores short-term market movements and accepts that upward and downward swings are a normal part of the investment landscape.

Pershing Square Capital Management's largest holding is Hilton Worldwide Holdings Inc, with 8,952,290 shares held. The company's latest 13F filing on May 15, 2023, showed that they held large positions in a handful of large-cap value stocks, a strategy sometimes known as "Buffett Investing" after the noted investor Warren Buffet.

Pershing Square's fees

Pershing Square Capital Management bases the management fees that it takes from its funds on a percentage of assets under management. The percentage is generally 1.5% annually for the core funds. On top of that, the firm collects a performance-based fee, which is generally 20% of the increase in net asset value (after the management fee and other losses have been deducted). However, in 2018, Pershing Square announced that it would slash its annual management fee to 1.35%. This came after three years of losses, which amounted to 4%, 13.5%, and 20.5% respectively.

In 2016, Pershing Square offered its clients a new fee arrangement following a second year of losses. Starting on January 1, 2017, the firm offered a new share class in which it would not charge any performance fee on gains of less than 5%. After that threshold was crossed, the performance fee would be 30%. Existing investors were given a one-time chance to opt into the new cost scheme, which was designed to accommodate investors who wanted to retain a greater share of returns in low to moderate return scenarios. The new fee structure meant that investors in the new share class would get a fee break if Pershing Square gained less than 15% but would face increased costs if gains exceeded that amount.

Pershing Square may negotiate any fees at its discretion, and fees may vary by product or service.

Pershing Square's notable investments

Pershing Square Capital Management is an American hedge fund management company founded and run by Bill Ackman, headquartered in New York City. Here are some of Pershing Square's notable investments:

Wendy's International

In 2005, Pershing Square bought a significant share in the fast-food chain Wendy's International. They successfully pressured the company to sell off its Tim Horton's donut chain through an IPO in 2006, raising $670 million for Wendy's investors. However, after selling his shares following a dispute over executive succession, Ackman was criticised for the company's weakened market position.

Target Corporation

In December 2007, Pershing Square owned a 10% stake in Target Corporation, valued at $4.2 billion. By 2009, their holdings had reduced to 7.8%.

Borders Group

In December 2010, Pershing Square held a 38% stake in Borders Group and indicated plans to finance a buyout of Barnes & Noble for US$900 million.

General Growth Properties (GGP)

In January 2009, Pershing Square disclosed a 7.4% ownership stake in GGP, becoming the second-largest shareholder. They bet on the company going bankrupt in a way that would leave shareholders intact. In November 2010, Pershing Square helped GGP emerge from Chapter 11 bankruptcy protection.

JC Penney and Canadian Pacific Railway

In 2010, Pershing Square reported taking large ownership stakes in JC Penney and Canadian Pacific Railway. However, in 2013, they liquidated their JC Penney shares, resulting in a loss of approximately $500 million.

Procter & Gamble

In July 2012, Pershing Square acquired shares in Procter & Gamble worth approximately $1.8 billion, a 1% stake in the company. They intended to take an activist role within the corporation. However, by the end of 2013, they had reduced their stake to around $60 million.

Air Products & Chemicals

In 2013, Pershing Square acquired a $2.2 billion stake in Air Products & Chemicals and nominated Matt Paull to serve on its board. During their four-and-a-half-year investment, Air Products & Chemicals delivered a 104.7% total shareholder return.

Valeant Pharmaceuticals International

Pershing Square experienced its "biggest-ever quarterly loss" of 25% in the first quarter of 2016 due to its 9% stake in Valeant Pharmaceuticals International. After controversial drug prices and operations were exposed, Pershing Square fired Valeant's CEO and sold its entire stake, resulting in a total loss of $4 billion.

Chipotle Mexican Grill

In September 2016, Pershing Square bought a 9.9% stake in Chipotle Mexican Grill, continuing its investment in the fast-food industry. As of March 2018, they held a 10.3% stake in the company.

Netflix

In January 2022, Pershing Square acquired a $1.1 billion stake in Netflix after a 30% selloff in the company's stock. However, after a 35% drop in Netflix's stock price in April, Pershing Square sold its entire stake, losing over $430 million.

Pershing Square's recent performance

Pershing Square Capital Management, the New York-based hedge fund founded and run by Bill Ackman, has had a mixed performance record in recent years. While the fund has made some successful investments, it has also encountered several notable setbacks.

One of Pershing Square's notable successes was its investment in Wendy's International in 2005. By pressuring the company to sell off its Tim Horton's donut chain, Pershing Square helped raise $670 million for Wendy's investors through an IPO in 2006. However, Ackman's sale of his shares following a dispute over executive succession led to criticism, as the stock price collapsed, leaving Wendy's in a weaker market position.

In 2013, Pershing Square acquired a $2.2 billion stake in Air Products & Chemicals and nominated Matt Paull to serve on the company's board. During Pershing Square’s four-and-a-half-year investment, the company delivered a 104.7% total shareholder return, demonstrating the fund's ability to create value for its investors.

However, Pershing Square also experienced significant losses during the same period. In 2016, the fund encountered its "biggest-ever quarterly loss" of 25%, partly due to its 9% stake in Valeant Pharmaceuticals International. The controversial drug prices and operations of Valeant became public, leading to the firing of former CEO Mike Pearson. Pershing Square sold its entire stake in Valeant, resulting in a total loss of $4 billion.

In April 2022, Pershing Square lost more than $430 million on Netflix after a three-month-long bet. The company's stock fell by 35%, prompting Ackman to sell his entire stake.

Despite these setbacks, Pershing Square has delivered impressive returns in certain instances. For example, in 2020, Pershing Square made a successful bet on a market crash, generating $2.6 billion. Additionally, from December 2012 to November 2017, Pershing Square Holdings reported returns of 17.1%, although this was still significantly below the S&P 500.

In summary, Pershing Square's recent performance has been a mixed bag, with both significant wins and losses. While the fund has generated substantial returns in certain cases, it has also encountered notable setbacks, highlighting the inherent risks associated with hedge fund investments.

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